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Land Bank asks for R22bn injection from the state

Request comes days after state arms maker Denel and Airports Company SA ask for help

20 May 2020 - 11:52 Linda Ensor

Arthur Moloto. Picture: SUNDAY TIMES

The Land Bank has become the latest state-owned entity (SOE) to hold out a begging bowl after the lender to farmers asked for a R22bn cash injection to plug holes in its balance sheet.

The Land Bank, which skipped payments on some of its debt in April, triggering a cross default on bonds worth R50bn, has been trying to get money after lenders refused to saddle it with more debt and roll over maturing loans.

Treasury acting deputy director-general for assets and liabilities Tshepiso Moahloli gave the details of the Land Bank’s funding request in a briefing by the bank and the Treasury to parliament’s standing committee on finance on Wednesday.

She said the request was made in February/March.

The bank’s request will test finance minister Tito Mboweni’s determination to wean SOEs off state financial support and shows how the Covid-10 outbreak has revived the cash-flow crisis at parastatals.

It comes days after state arms maker Denel said it could not pay salaries for May, while Airports Company SA, one of the few profitable SOEs in recent years, said it could require new government-backed debt of up to R11bn as it battles a devastating hit from Covid-19-induced travel restrictions.

The government has guaranteed R5.7bn of Land Bank debt.

The lender, which until recently was held up as an example of a financially sustainable SOE, has reached an arrangement with creditors where no interest or capital payments are currently being made.

It also came to light during the parliamentary briefing from comments made by the bank’s chair, Arthur Moloto, that Mboweni indicated there was a need to revisit the issue of Land Bank being 100% state-owned.

Land Bank CEO Ayanda Kanana revealed to the committee that provisional, unaudited results for 2019/2020 until February showed that the bank had suffered an operating loss of R17m. This compared to a R168.3m profit for the full 2018/2019 financial year and profit of R290.2m in 2017/2018.

Operating profit has declined steadily over the past five years. The net interest margin in 2019/2020 was 2.1%.

The government has signalled its intention to save the bank, with Treasury director-general Dondo Mogajane saying this week it was determined to save it "at all costs".

Moloto stressed that no amount of re-engineering of the bank’s balance sheet would cure its problems without a capital injection by the state.

The bank had equity of R5bn and liabilities of about R45bn and was undercapitalised to assume the risk on its balance sheet, he said. Of the R45bn in liabilities, about 45% are short-term funds.

"We are in a discussion with the National Treasury with a view of recapitalising the Land Bank … if you are thinly capitalised and your equity position is being eroded, you pose serious risks to the bank, and that is what we are trying to avoid," Moloto said.

He said negotiations with a consortium of lenders, comprising commercial banks and institutional investors, were at a very sensitive stage and were aimed at restructuring the debt facilities and finding ways to lengthen the term of the loans. He could not divulge more at this stage but will go back to lenders within less than a month with a proposal on how to solve the liabilities of the bank.

Kanana gave a presentation on the challenges facing the bank, noting that RMB has been appointed as its corporate financial adviser. Standard Bank is representing commercial banks and the Association for Savings & Investment SA the institutional investors. He said the bank had announced an emergency liquidity facility of R3bn to help it service critical disbursements.